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Sempra Energy's Cameron LNG Export Construction Project Hits Rain/Flooding Delay

Rain and flooding in the Louisiana Gulf Coast have caused what is estimated to be a six-month delay in the completion of the three liquefaction trains under construction at Sempra Energy's Cameron (LA) liquefied natural gas (LNG) export terminal, Sempra CEO Debra Reed said during a 3Q2016 earnings conference call Wednesday.

A possible fourth train at the facility is now in doubt because of other factors, she said.

Expectations have been that Cameron's initial three trains would all be fully operational by the end of 2018 (see Daily GPI, March 5, 2014), but now that is likely to be pushed back six months into 2019, said Reed, who received the informal notice on the delay last week. The Cameron joint venture (JV) partners have not yet been able to meet with the engineering, procurement and construction (EPC) contractor but will do so in the coming weeks.

Reed said the revised construction schedule calls for mid-2018 for the completion of the first train, late 2018 for the second, and mid-2019 for the third liquefaction train. Sempra has estimated that it is in line to receive $80 million of additional quarterly earnings when all three trains are operable, so the pending delay could affect 2018 and 2019 earnings.

"We're disappointed in the short-term delay because at Sempra we take great pride in doing projects on time and on budget, but under our turnkey construction agreement, the contractor retains responsibility and overall control of the project schedule," Reed said.

Sempra holds an indirect 50.2% ownership interest in Cameron LNG and the related liquefaction project. The remaining portion is owned by affiliates of GDF Suez SA, Mitsubishi Corp. (through a related company jointly established with Nippon Yusen Kabushiki Kaisha) and Mitsui & Co. Ltd., each with 16.6% stakes (see Daily GPI, June 19, 2014).

In March 2014, CB&I and Chiyoda International Corp. were awarded the $6 billion EPC contract to build the facilities at Sempra's LNG import facility at Hackberry, LA. The project is expected to cost $9-10 billion and will use many of Cameron LNG's existing facilities. It will be composed of three liquefaction trains capable of exporting up to 12 million tonnes per annum, or about 1.7 Bcf/d of liquefied natural gas (LNG).

Separate from the delays in the first three trains, the prospects for expanding Cameron with a fourth train are now in jeopardy because one of the existing JV partners has decided not to participate in a fourth train. "Any expansion of Cameron requires the unanimous approval of JV partners, and discussions with the partners on this have been ongoing for several months and we are considering a number of options as a clear path to expansion," Reed said.

"We continue to believe that a Cameron expansion would be well positioned as one of the world's low-cost LNG supplies.

Analysts on the earnings call had numerous questions about the LNG construction delays, and Reed and Sempra President Mark Snell said that the construction project, which is more than half finished, has all of the major components for the export terminal on site and in place.

"We've not had the opportunity to sit down with the contractor and discuss this, but we will be doing that in the next week or so," said Reed, who visited the site last week. Snell said "there is no indication the contractors are not performing. They have an obligation under the contract to tell us when they think there is going to be a delay; they have done that, and we will work through it, but the important point is that they are not saying they can't finish the job."

For 3Q2016, Sempra reported adjusted profits of $259 million ($1.02/share), compared with $248 million (99 cents) for the same period last year. For the first nine months of this year, earnings were $884 million ($3.51), compared to $931 million ($3.72) for the same period in 2015.

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